What is the impact on the remittance cities of the South Indian state of Kerala?

Remittances — or funds sent by expatriates or migrant workers back to their home countries — serve as one of the largest financial inflows to developing countries, representing nearly three times more than foreign development aid and at a more steady pace than foreign investment. According to the World Bank’s Migration and Remittance Factbook, remittances reached an estimated $582 billion globally in 2016, of which developing countries received about $441 billion.

Today, this vital source for developing nations faces unprecedented challenges. In January 2017, President Trump threatened to tax remittances from the US to Mexico, and Rep. Mike Rogers of Alabama introduced the Border Wall Funding Act of 2017 to levy a 2% fee on transfers sent “south of the US border.” Although remittances to Latin American have increased, since 2015 remittances to developing countries overall have fallen, reversing a 30-year trend. Low oil prices and weak economic growth in remittance-source countries have reduced flows from Russia and the Gulf Cooperation Council countries that include Saudi Arabia, Kuwait and the UAE. Governments have severed the bank accounts of money transfer operators in an effort to reduce anti-money laundering regulatory risks.

How much do these remittances matter? And what dangers do citizens in these countries face? To better understand the impact of remittances, we examined the remittance economy of the South Indian state of Kerala.

May 5, 2017

Kerala is a South Indian state whose major cities on average have the highest Human Development Index in the country, a composite measurement of per capita income, life expectancy and education. Containing growing cities like Trivandrum, Kochi, Calicut and Quilon, Kerala is also experiencing rapid urbanization at a faster clip than any other state in India. The Economist reports that in 2001, 74% of Keralites lived in rural areas, but that proportion had fallen to 52% by 2011.

The source of Kerala’s development can be understood by looking at another statistic for which the state ranks No. 1: foreign remittances. Remittances come mostly from workers who emigrated to the Arab states of the Persian Gulf. According to a 2016 article in the Journal of Applied Economic Research, some 2.4 million Keralites live abroad. Keralites began migrating during the Gulf Boom of the 1970s and 1980s. Today more than a million of the Gulf’s immigrant workers are from Kerala, and remittances largely from that area make up about 36% of Kerala’s GDP.

In the early 2000s, cities in Kerala saw an influx of “Gulf houses,” or newly erected, colorful homes and apartment buildings that line the coast and are typically owned by families with a family member living abroad. They juxtapose businesses with names like “Dubai Bazar,” “Gulf Souq” and “Gulf Bazar.” This influence from the Persian Gulf is felt not only financially but also culturally.

The remittance economy has undeniably made Kerala more affluant, supported by findings that the state is now about 50% wealthier per person than India’s national average. The state draws in immigrants itself in correlation with the wealth created for Kerala’s residents by its own workers living abroad. Workers arrive into Kerala from places like Bengal in order to feed the construction needs of Kerala residents who have found wealth through remittances. The city is seeing a construction boom like no other, which further exposes the income discrepancy between those holding remittance wealth and those who do not. The architectural influence can be rooted back to where the money comes from.

Zachariah Jacob is a Keralite who now lives in Delhi and runs a Kerala restaurant called Mahabelly. He was born in what was then a small town called Thiruvalla and says that his family have been in Kerala for many generations. “I belong to a specific sect of Christians called Knanaya Community, known for our distinct traditions and practice of endogamy [marrying only within the limits of the community]. We are Syrian Jacobites who had come to Kerala in the fourth century and thereafter settled in different parts of Kerala.”

Jacob frequently goes back to Kerala, because his family still lives there. He says that families based only in Kerala were exceptions in the early 1990s and early 2000s. Many Keralite families had at least one member in a provider role living in the Persian Gulf. He also tells me that it was common to give children an education that would assure them a high-paying job abroad:

In my school, where there were about a thousand boarders, at least 90% of the kids were from an NRI [nonresident Indian] background. They belonged mostly to the middle-class or upper-middle-class strata, where the parents were working in the medical or engineering sectors or were part of multinational corporations abroad.

As far as the lower-income class is concerned, it was common practice to enroll boys in vocational development institutions — such as polytechnics, where boys are trained to become mechanics, plumbers, electricians, elevator technicians and fire safety operators — to ensure them a decent-paying job abroad. Among girls, nursing was a very popular career option with well-paid job prospects abroad. Whatever savings the ones who go abroad accumulate are typically sent back home to support their families.

When asked about Gulf-style houses and the influence of Gulf cuisine, Jacob says these are now commonplace in the culture. However, in the past two years the allure of remittances have declined as the state government tries out new methods. “These days, in fact, there is a reversal trend, where the Malayali [the major ethnolinguistic group in Kerala]–owned big businesses are investing back in the state by developing huge IT parks, hotels, hospitals, shopping malls and more, significantly contributing to the urban development of the state.”

Remittances have been the main supporting factor for the state’s growth until now, and it would have a hard time sustaining itself without them. Lower oil prices may also have slowed the influx of money into Kerala. Experts fear that a recession may be in the cards for Kerala. Combined with a decline in emigration that’s expected over the next five years, these factors indicate that a recession may be in the cards for Kerala.

Further, labor abuses concerning migrant workers in the Gulf States have been in the headlines since the mid-1980s and continue today. The consequences of Qatar’s FIFA World Cup bids and securement is likely the most famous have leading to an estimated 1.8 million migrant workers with an average of 1,000 of them die each year according to the International Trade Union Confederation’s December 2015 report. In addition to death, Impactt’s recent April 2017 report on the region revealed that immigrants are working 72 hours a week, sometimes for as long as 148 consecutive days, and are paying recruiters as much as $3,800 for the opportunity.

Born and raised in Kerala, Vivek George currently works for the World Trade Center in Kochi. He told me that the migrant labor trend has rapidly slowed since 2008, which he attributes to the Nitaqat “Saudization” initiatives employed by the Saudi government. These initiatives have resulted in a loss of employment for many Keralites who are leaving the Gulf en masse. George explained that even the war in Syria has caused a ripple effect, and many nurses in the region have also lost their incomes and returned home. The Kerala government is actively working to better the situation.

The Kerala government has initiated several measures to bring back affected people from Saudi Arabia, as well as to rehabilitate them. Not only did the Kerala government provide free air tickets for those who lost their jobs to return home and also chartered flights to bring back Keralites; the government has also announced a rehabilitation package for the returnees, including a self-employment scheme. An example is providing a 10% subsidy to 1,000 entrepreneurs whose projects cost up to Rs 20 lakh [INR 20,00,000], and the Cabinet has earmarked Rs 10 crore [INR 10,00,00,000] for this purpose.”

For now, a complete independence from remittances is a distant possibility that will require a lot of time and effort. Construction and urbanization is still prevalent in the ever-developing state. The World Cities Report of 2016 reveals that urbanization in Kerala has resulted in a huge shift in but two decades that’s predicted to continue over the next decade.

When the economies of entire regions of one country are sustained through the economy of another country, it’s a strange, demonstrative example of how wealth distribution manifests itself globally. Kerala is a good place to examine and understand what the future of such relationships hold if only the conditions change.

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